The opinion of the court was delivered by: Mukasey, District Judge.
Plaintiff Securities Settlement Corporation ("SSC") sues
defendant Lucy M. Jachera to recover the value of securities
which SSC mistakenly delivered to Jachera's IRA securities
account at the investment firm of Merrill Lynch, Pierce, Fenner
& Smith, Inc. ("Merrill Lynch"). Plaintiff now moves for
summary judgment pursuant to Fed. R.Civ.P. 56. As appears
below, plaintiff's motion is granted in part and denied in
Defendant Jachera has impleaded Merrill Lynch as the employer
of the broker who traded the securities in issue at defendant's
request. Merrill Lynch moves for summary judgment dismissing
the third-party claim and, for the reasons stated below,
Merrill Lynch's motion is granted.
Plaintiff SSC is a clearing broker. As such, it performs back
office and recordkeeping functions for its correspondent retail
broker-dealers who sell securities to the public. Among SSC's
duties are the receipt, delivery, and safeguarding of
On December 2, 1982, defendant Lucy M. Jachera purchased 20,000
shares of Damson Institutional Energy ("Damson Institutional")
and 20,000 shares of Consolidated Capital Institutional
Properties ("Consolidated Institutional"), all at $1.00 per
share, for her I.R.A. account at Thomson McKinnon Securities
("Thomson"). On April 29, 1986, Jachera transferred her I.R.A.
account from Thomson to Moore & Schley, one of SSC's
correspondent broker-dealers. In transferring the account,
the erroneous position of 20,000 shares of Damson Energy LP UT
L P ("Damson Energy") rather than the correct position of
20,000 Damson Institutional.
In November 1986, Jachera again transferred her I.R.A. account,
this time to Merrill Lynch. Jachera's broker at Merrill Lynch
submitted to SSC an Authorization to Transfer Retirement
Account (the "Transfer Statement") requesting that "20,000
DAMSON" and "20,000 CONSOLIDATED CAPITAL" be transferred from
Moore & Schley to Merrill Lynch. SSC then executed the
transfer, but mistakenly delivered the erroneous position of
20,000 Damson Energy securities found in Jachera's Moore &
Schley account. (Finger Aff. ¶ 10) Furthermore, due to errors
previously made by Thomson and SSC, Consolidated Institutional
was written off Jachera's account.
In May 1987, SSC finally transferred the 20,000 shares of
Consolidated Institutional to Jachera's Merrill Lynch account.
But appearing instead on Jachera's Merrill Lynch account
statement of May 29, 1987 were 10,052 shares of CONS CAP I OPPT
TR 2 SBI — i.e., Consolidated Capital Income Trust
("Consolidated Income"), at $13 per share. (Finger Aff., Ex. E)
Jachera had never owned shares of Consolidated Income, but she
insists that she was unaware that the shares reported were
different from the Consolidated Institutional shares that she
did own. At the same time, Jachera's Moore & Schley statement
reflected a long position of 9948 shares of CONSOLIDATED CAP
INST PRO INVT — i.e., Consolidated Institutional. No price
was reported for the latter security because it was not
In July 1987, Jachera instructed her broker at Merrill Lynch to
sell the 10,052 shares of Consolidated Income for $132,181.12,
and use the proceeds to purchase 6,000 shares of Par
Pharmaceutical Inc. for $164,278.75. (Jachera Aff., 4/4/91, ¶
15) Before the time of sale, Consolidated Income's name had
been changed to Income Opportunity Realty Trust ("Income").
Jachera insists she had no idea that the Income/Consolidated
Income securities were not the same ones she had purchased in
1982. Late in 1987, SSC discovered its error and realized that
it had created a short position of 10,052 Income/Consolidated
Income shares in Jachera's Moore & Schley account. (Finger Aff.
¶ 24) SSC then contacted Merrill Lynch about the mistake and
discovered that Jachera had sold the position. In December
1987, when Jachera did not rectify the short position, SSC
bought back the 10,052 units on the open market and compensated
Moore & Schley for dividends never received. SSC's total cost
was $104,872.29. (Finger Aff., Ex. D statement of 12/31/87)
In the months following the sale, Jachera engaged in several
additional securities transactions, suffering substantial
losses to her I.R.A. account as the market collapsed. By July
1988, Jachera's losses had completely erased her gain from the
sale of the Income/Consolidated Income securities. (Jachera
Aff., 4/4/91, ¶ 29) Jachera claims that she would not have
suffered these losses, but for SSC's mistake that led her to
believe that she had a gain with which to trade. (Jachera Aff.,
4/4/91, ¶ 14)
During late 1988, SSC discovered its other mistake: delivering
the wrong "Damson" security to Jachera's account in November
1986. Moore & Schley then sent a letter to Jachera asking her
to return the Damson Energy security, but received no response.
(Finger Aff. ¶ 12, Ex. B) In order to cover the short position,
SSC bought back the 20,000 units on the open market at a cost
of $10,000. (Finger Aff. ¶ 14) In 1989, Jachera finally sold
the 20,000 Damson Energy shares for $10,144.48. (Defendant's
Rule 3(g) statement ¶ 7)
SSC brings the present action to recover the value of the debit
balance in Jachera's account. As of March 8, 1991, the debit
balance was $111,180.12.*fn1 Jachera has impleaded Merrill
Lynch for indemnity or contribution should she be found liable.
Both plaintiff SSC and third-party defendant Merrill Lynch now
move for summary judgment against defendant Jachera.
SSC is a Delaware corporation with its principal place of
business in New York City; Jachera is a New Jersey resident.
The court has diversity ...